We agree that Hong Kong should impose general sales tax with sales tax system adjusted. Firstly, the government can refer to the weight of CPIs to define luxuries, and impose with higher sales tax rate on them than necessities. So, the higher-income group bears higher tax rate. And the wealth gap may be widened in a smaller extent. Secondly, sales tax should be imposed on consumer goods. So, the administrative cost of enterprises are minimised. Therefore, the upward shifting of SRAS curve and the increase in price level will be in a smaller extent. Thirdly, profits tax rate should be reduced to attract foreign investment. It may offset the disincentive effects on investment. Also, financial services are excluded to maintain Hong Kong’s competitiveness. Fourthly, most administrative costs are one-time cost as proved by the charge in administrative cost over the sales tax revenue in Australia. Therefore, the cost- effectiveness is still high. Lastly, sales tax rate should be lower than our nearby countries and tax rebate should be offered to tourists. Therefore, tourists will still visit Hong Kong where prices are reasonable and qualities are guaranteed. It will be more easily to introduce sales tax when the economy is in recovery with low unemployment rate, steady growth of real GDP. Therefore it is good for Hong Kong to impose sales tax now! Wealth gap would be widened Sales tax is a regressive tax, of which average tax rate decreases when income increases. So wealth gap will be widened. Singapore raised its sales tax from 3% to 4% in 2003 and to 7% in 2007. Its Gini Coefficient rose from 0.450 in 2003 to 0.471 in 2007. It shows that sales tax worsens income disparity. Higher cost of living As the unemployment rate of Hong Kong (3.1%) is close to the natural rate of unemployment (2.5%), it is assumed Hong Kong is now at full-employment level. Imposing a sales tax will increase the administrative costs and cost of production of corporations. So, SRAS will decrease, the price level will increase. Consumers may bear those additional costs in the whole production chain and thus increasing the cost of living (see diagram). Disincentives to invest Hong Kong attracts overseas investment due to simple tax system and low tax rate. Imposing sales tax will increase the production cost for enterprises. So the inflationary pressure induced adds burden to workers. Therefore they will bargain for higher nominal wage, which further increases cost of the production. The investment incentive will decline. Administrative cost Government needs to pay for the administrative cost such as setting up departments when imposing sales tax. Tourism Tourism accounts for 4.5% of GDP and 6.5% of employment in Hong Kong. After imposing sales tax, price advantage of Hong Kong goods will be lost. The quantity demanded of goods of both locals and foreigners will decrease. Sales revenue net of tax of the retailing industry must fall. Should sales tax be imposed in Hong Kong? Sales tax is very common among developed countries. However, in 2006 the proposal of sales tax was turned down by the locals in Hong Kong. We will study the possibility of the implementation of sales tax in Hong Kong by looking into the arguments for and against the policy. A widened tax base The source of government income is limited and over-dependent on a few sectors now. Sales tax is an indirect tax on every consumption of goods and services. Upon the introduction of sales tax, more people will fall into the tax net as all citizens are taxpayers. So, the tax base will be widened. Risk of future fiscal deficit (i) Cyclical Deficit Hong Kong is over-dependent on direct tax but it fluctuates with GDP. So business cycle may result in unstable tax revenue. In 2008, the fluctuation of Japan’s sales tax revenue is much smaller than that of the corporation tax. It shows that the sales tax revenue is less susceptible to cyclical fluctuation. (ii) Deficit arise from ageing population In 2041, one-third of the population will be elderly. They rely much on government support, thus causing large government expenditure. Meanwhile, revenue generated from direct tax will fall. So, future deficit appears. If sales tax is implemented, business cycle will cause a less severe deficit as the government revenue will be stabilised. For Against Conclusion 語出經人經濟分析比賽冠軍 Text: Fung Miu Hing, Mak Cheuk Yi, Wan Kwing Wai, Chow Pui Yin, Leung Cheuk Pan (Hoi Ping Chamber of Commerce Secondary School) 校園經濟︱12月號 18 ▲ 圖為冠軍隊伍旅港開平商會中學的同 學,與三位評判香港大學教育學院副院 長彭明輝博士(右二)、考評局人文學 科評核發展經理徐力航(左二)及教育 局局長政治助理施俊輝(左一),以及 主辦單位之一香港經濟教育協會主席馮 漢賢(右一)合照。 SRAS2 LRAS P0 Y0 Y1 Price level Real GDP 0 P1 AD SRAS1 圖片:法新社、資料圖片
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We agree that Hong Kong should impose general sales tax with sales tax system adjusted. Firstly, the government can refer to the weight of CPIs to define luxuries, and impose with higher sales tax rate on them than necessities. So, the higher-income group bears higher tax rate. And the wealth gap may be widened in a smaller extent.
Secondly, sales tax should be imposed on consumer goods. So, the administrative cost of enterpr ises are minimised. Therefore, the upward shifting of SRAS curve and the increase in price level will be in a smaller extent.
Thirdly, profits tax rate should be reduced to attract foreign investment.
It may offset the disincentive effects on investment. Also, financial services are excluded to maintain Hong Kong’s competitiveness.
Fourthly, most administrative costs are one-time cost as proved by the charge in administrative cost over the sales tax revenue in Australia. Therefore, the cost-effectiveness is still high.
Lastly, sales tax rate should be lower than our nearby countries and tax rebate should be offered to tourists. Therefore, tourists will still visit Hong Kong where prices are reasonable and qualities are guaranteed.
It will be more easily to introduce sales tax when the economy is in recovery with
low unemployment rate, steady growth of real GDP. Therefore it is good for Hong Kong to impose sales tax now!
Wealth gap would be widenedSales tax is a regressive tax, of which
average tax rate decreases when income increases. So wealth gap will be widened.
Singapore raised its sales tax from 3% to 4% in 2003 and to 7% in 2007. Its Gini Coefficient rose from 0.450 in 2003 to 0.471 in 2007. It shows that sales tax worsens income disparity.
Higher cost of livingAs the unemployment rate of Hong
Kong (3.1%) is close to the natural rate of unemployment (2.5%), it is assumed Hong Kong is now at full-employment level. Imposing a sales tax will increase the administrative costs and cost of production of corporations. So, SRAS will decrease, the price level will increase. Consumers may bear those additional costs in the whole production chain and thus
increasing the cost of living (see diagram).
Disincentives to investHong Kong attracts overseas
investment due to simple tax system and low tax rate.
Imposing sales tax will increase the production cost for enterprises. So the inflationary pressure induced adds burden to workers. Therefore they will bargain
for higher nominal wage, which further increases cost of the production. The investment incentive will decline.
Administrative cost Government needs to pay for the
administrative cost such as setting up departments when imposing sales tax.
TourismTourism accounts for 4.5% of GDP and
6.5% of employment in Hong Kong. After imposing sales tax, price advantage of Hong Kong goods will be lost. The quantity demanded of goods of both locals and foreigners will decrease. Sales revenue net of tax of the retailing industry must fall.
Should sales tax be imposed in Hong Kong?Sales tax is very common among developed countries. However, in 2006 the proposal of sales tax was turned down by
the locals in Hong Kong. We will study the possibility of the implementation of sales tax in Hong Kong by looking into the arguments for and against the policy.
A widened tax base The source of government income is
limited and over-dependent on a few sectors now. Sales tax is an indirect tax on every consumption of goods and services. Upon the introduction of sales tax, more people will fall into the tax net as all citizens are taxpayers. So, the tax base will be widened.
Risk of future fiscal deficit(i) Cyclical Deficit
Hong Kong is over-dependent on direct
tax but it fluctuates with GDP. So business cycle may result in unstable tax revenue.
In 2008, the fluctuation of Japan’s sales tax revenue is much smaller than that of the corporation tax. It shows that the sales tax revenue is less susceptible to cyclical fluctuation.( i i) Deficit arise from ageing population
I n 2 0 4 1 , o n e - t h i r d o f t h e population will be elderly. They rely much on government support,
thus causing large government expenditure. Meanwhile, revenue generated from direct tax will fall. So, future deficit appears.
If sales tax is implemented, business cycle will cause a less severe deficit as the government revenue will be stabilised.
For
Aga
inst
Con
clus
ion
語出經人經濟分析比賽
冠軍
Text: Fung Miu Hing, Mak Cheuk Yi, Wan Kwing Wai, Chow Pui Yin, Leung Cheuk Pan (Hoi Ping Chamber of Commerce Secondary School)
Can Bitcoin replace traditional money in the future?Bitcoin is a digital currency of a software-
based online payment system, it is stored in a “digital wallet“, either in the cloud or on a computer. Transactions are done entirely on the Internet. Therefore, without going through a clearing house, it significantly minimises transaction cost. Only the user ID of buyers and sellers will be shown to keep their transactions private.
Bitcoins are “mined” by solving complex math puzzles with computers, since they are not easily generated, thus it gets its value.
What is a good money?A good money acts as a unit of account, a
store of value, a medium of exchange and the standard of deferred payment. It should also be generally accepted. The US dollar is a better money than the Hong Kong dollar because it is more generally accepted. It is the standard unit of currency in international markets for gold and petroleum. Non-U.S. companies dealing in global markets, such as Airbus, list their product prices in dollars. It is also used as an international reserve currency.
Generally acceptedThere are now over 5,000 companies
a c c e p t i n g B i t c o i n c o m p a r i n g t o o n l y 552 companies at its commencement in November 2013. However, most of our daily use of money is in traditional currency instead of Bitcoin since it is a relative new concept. There are very few infrastructures available for paying by Bitcoin, thus it is not generally accepted.Portability
Bitcoin is more portable since it is a digital money. People can carry a mobile phone with Bitcoin wallet, make transactions by scanning the product’s QR code and input the address of seller’s Bitcoin wallet. The process is more convenient and faster. It
doesn’t require people to hold a purse, which they need to when carrying traditional money.
DurabilityBi tcoin i s a lmost imposs ib le to be
destroyed since it is a digital currency. It is more durable. Traditional money is easier to be destroyed since it has a physical state and can be worn out or torn off. Divisibility
US dollar's minimum transaction unit is $0.01 while that of Bitcoin is 0.00000001BTC. Bitcoin is more divisible than US dollar. Bitcoin is more suitable for transactions in small scale.Homogeneous
1 US dollar has the same value of another 1 US dollar. 1 unit of Bitcoin has the same value of another 1 unit of Bitcoin. It means both traditional money and Bitcoin are equally homogeneous in normal daily use.Stability
The graphs show that the value of Hong Kong dollar is more stable than that of Bitcoin. The reason is that Hong Kong dollar has the support from the government to stablise its value.
As the above table shown, Bitcoin has its own strengths and weaknesses, it is actually better than traditional money in the aspect of portability, durability and divisibility. However, we cannot find obvious weaknesses and strengths from traditional money, while Bitcoin obviously has some problems to overcome, like stability and to gain public acceptance. Therefore, it still needs to work on the stability of value to gain public trust.
▲圖為季軍隊伍港大同學會書院的同學及指導老師,與評判團及香港經濟教育協會主席合照。
Text: Jason Wong, Jonathan Ho, Steven Ma, Kevin Lau (HKUGA College)